Transcript Эффективные рынки

Market
Microstructure
-Why do prices rise?
- Because there are more buyers
than sellers!
Plan
Why is the organization of trading process important
for investors?
 Buying and selling
– Short sales
– Margin and leverage effect

Classification of financial markets
– Primary vs secondary markets
– Exchange vs OTC markets
NES
FF 2005/06
2
Examples

Ticks
– 1/8 vs 1/32 vs decimal

Price over 100
– Stock splits

Analyst recommendations
– Conflict of interests

Failure of LTCM
NES
FF 2005/06
3
Market participants

Brokers
– Trading on behalf of a client

Dealers
– Trading for their own account

Market-makers
– Providing bid-ask quotes
NES
FF 2005/06
4
Placing an order



Market
Limit
Short sale
– ‘Selling a cow, which you don’t own’
– Borrow a stock from (another client of) your
broker

Stop loss/buy
– Conditional market order: to lock in gains
NES
FF 2005/06
5
Margin trading

Initial / maintenance margin
– % of MV(assets) kept in the account as collateral
– The rest is borrowed from the broker

Margin call
– If the amount in the account drops below maintenance
margin

Leverage effect:
r = (ΔP - interest) / (P0margin)
NES
FF 2005/06
6
Classification of financial
markets

Bank credits
– Commercial vs Interbank

Foreign exchange (FX)
– Spot / forward exchange
– Deposit-loan
•
•
National markets
Euro markets
NES
FF 2005/06
7
Classification of financial
markets (2)

Security market
– Primary
– Secondary
•
Exchange:
– NYSE, LSE (stocks)
– CBOT, LIFFE (derivatives)
•
OTC (over-the-counter)
– NASDAQ
NES
FF 2005/06
8
Desirable characteristics



Informational transparency
Min transaction costs
Liquidity
– Ability to open or close large positions without
strong effect on prices
– Tightness / depth / resiliency

Informational efficiency
– Speed of incorporating information to prices
NES
FF 2005/06
9
Market architecture

Degree of continuity
– Periodic vs continuous systems

Reliance on market makers
– Auction / order-driven market
– Dealer / quote-driven market: market maker
takes the opposite side of every transaction

Degree of automation
– Floor vs screen-based electronic systems
NES
FF 2005/06
10
Market architecture (2)

Protocols
– Choice of minimum tick
– Rules to halt trading, circuit breakers

Transparency: providing info before (quotes,
depths) and after (actual prices, volumes) trades
– Extent of dissemination: brokers, customers, or public
– Speed of dissemination: real time / delayed feed
– Degree of anonymity: hidden orders, counterparty
disclosure
– Permitting off-exchange / upstairs trading
NES
FF 2005/06
11
Basic trading systems

Batch auction / call market: NYSE open
– Agents submit demands to the auctioneer who sets
common market clearing price

Continuous auction: NYSE intraday, Euronext
– Floor: brokers trade with each other on behalf of their
clients
– Electronic: the system displays the best limit orders and
automatically executes incoming market orders

Dealership market: NASDAQ
– Market-makers provide bid and ask prices at which
other agents may trade
NES
FF 2005/06
12
Stock exchange vs OTC
Stock exchange
OTC
Auction
Dealer market
One center
Different locations
Access only for members
Much wider membership
Listing with strong requirements No or weaker
for companies
requirements
Bid/ask quotes or
Quoting: a single price
limit order book
NES
FF 2005/06
13
NYSE vs NASDAQ
NES
FF 2005/06
14
Recent developments


Trading online
Exchange-traded funds (ETFs)
– Mimick indices
– E.g., Cubes, Spiders, Diamonds

Electronic Communication Networks (ECNs)
– Automated systems for disclosing / executing trades

Program trading
NES
FF 2005/06
15
Structural shifts
Technological innovations
 Substantial increase in trading volume
 Competition between exchanges and
ECNs
 Proliferation of new financial
instruments

NES
FF 2005/06
16
Regulation of stock
trading

Circuit breakers
– Restrictions on trading if prices reach a threshold

Legislation
– Firms: public disclosure of relevant info
– Employees: no insider trading
– Market participants: fair trading

Monitoring by SEC
– Key divisions: CorpFin, MktRegulation, Enforcement
NES
FF 2005/06
17
Market microstructure
models

Price formation / discovery
– How prices impound info over time
– Determinants of trading costs

Market structure and design
– Trading process vs price formation
NES
FF 2005/06
18
Market microstructure
models (2)

Transparency
– Info and disclosure

Interaction with other areas in finance
– CorpFin: IPO underpricing, stock splits
– Asset Pricing: liquidity as risk factor, anomalies
vs trading costs
– IntlFin: ADRs, cross-border flows
NES
FF 2005/06
19
Selected issues

What are the components of the bid-ask
spread?
– Risk aversion
– Inventory control
– Info asymmetry

Why is trading concentrated at the opening
and closing?
– Optimal choice of timing the transaction by
uninformed
NES
FF 2005/06
20
Selected issues (2)


Is continuous bilateral system better than
periodic multilateral one?
Is it good for a stock to be traded in several
markets?
– Gravitation vs stratification


Should the limit order book be displayed in
public?
How to execute block trades optimally?
NES
FF 2005/06
21
Conclusions
You make more selling information
than following it